Stock market speak: a beginner’s guide

Active investment management
In active investment funds, a manager uses knowledge of the financial markets to pick the investments they believe will increase in value. This should be a guarantee of better investment performance, but this may not the case.

Asset allocation
The different types of investments you hold, and the proportion of each. For example, you may have a portfolio that is half stocks and shares and half bonds.

Asset class
A type of investment category, such as shares or bonds.

Bear market
Where the value of the stock market has fallen by at least 20 per cent.

Bid-offer spread
The difference between the bid price for a share and the offer price for that share. The bid is the price at which you can sell an investment, the offer is the price at which you can buy it.

Bonds
Loans raised by organisations such as companies (corporate bonds) and governments (gilts in the UK). Bonds pay a fixed income for a set period and are tradable on the market.

Bull market
Where the value of the stock market has risen by at least 20 per cent.

Diversification
Owning a variety of investments, whether they’re shares, property or bonds, which will ensure you’re not facing too much risk from a single area. Otherwise known as not putting your eggs all in one basket.

Dynamic portfolio management
An investment style where the manager rebalances their investments periodically to bring asset allocation back in line with the model originally set — this usually means selling underperforming shares and reinvesting the money.

Equities
Another name for shares issued by companies.

Exchange-traded funds
A type of passive investment, listed on the stock market. These funds — almost always known as ETFS — are a rapidly growing sector of stock markets worldwide .

Fund
A fund pools together money from many investors, including investment trusts, unit trusts, ETFs and open-ended investment companies.

Income fund
A fund investing in stocks and shares, which a generates a higher than average level of yield for investors. Typically this will be about 3.5 per cent or more, with an average figure of just over 4 per cent, though some high income funds pay as much as 7 per cent.

Key Investor Information Document
Tells you everything you need to know about the fund.

Multi-asset funds
While most funds invest in a single asset class some invest across several to achieve their investment objective.

Passive investment management
A fund where the manager aims to track the performance of a specified market or index — for example the FTSE 100 of blue-chip UK shares — rather than pick what they expect to be the best-performing investments.

Wrapper
Nothing to do with sweets. An Isa “wraps” your investments, sheltering them from tax.

Yield
A measure of how much income an investment pays relative to its price. Yields rise and fall according to the changing value of the investment, even if it offers fixed income.

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